We must adapt to private labels: Fonterra MD

Fonterra Australia boss Judith Swales...“We need to drive milk supply, have profitable farmers and make sure we are in high value end markets.”
Photo: Josh Robenstone

by
Tim Binsted

Fonterra Australia
managing director
Judith Swales
says private label products are part of doing business and it’s up to supermarket suppliers to adapt with cost efficiency and innovation.

Dairy farmers and milk processors such as Fonterra have been battered in recent years by the cut-price milk war between
Coles
and
Woolworths
and the push to get more private label products on supermarket shelves.

But Ms Swales said anything customers wanted including $1 a litre milk, was “part of doing business and should not be seen as a necessary evil".

“It is beholden on us to drive category innovation. We need to take them [Coles and Woolworths] solutions and not ­problems," she said.

In April, Fonterra made its first entry into private label milk in Australia, inking a 10-year contract with Woolworths in Victoria. The New Zealand-based dairy giant will spend $30 million on a state-of-the-art milk plant in Cobden to supply the contract.

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“If you are in food manufacturing in Australia, you need [to] be cost competitive," Ms Swales said.

Fonterra’s contract win came at rival Lion’s expense.

New Lion dairy and drinks boss Peter West said in May he will not chase private-label contracts “at any cost". Fonterra is no stranger to pain from the big supermarkets. The world’s biggest dairy exporter has found Australia a tough place to do business in recent years, underscored by Coles’s delisting of Fonterra’s Mainland cheese brand.

But Ms Swales said Fonterra Australia, which has brands like Bega Cheese, ­Perfect Italiano, Ski Yoghurt and Western Star, has its house in order and is now “gearing up for growth".

“We have five brands worth over $500 million in retail sales," she said.

Perfect Italiano cheese and Western Star butter are two star performers given the advent of cooking shows such as ­MasterChef Australia, and Ms Swales said identifying those kinds of consumer trends is key.

Fonterra Australia is trying to diversify its export offering away from commodities such as milk powders into higher-value products such as infant formula. Ms Swales said China alone is expected to have a milk supply shortage of around 10 billion litres. This presents a major opportunity to ship dairy products to Asia. Changing dietary habits, a growing ­middle class and a growing population in need of protein are powerful demographic factors that augur well for Fonterra. But additional milk ­supply is needed to capitalise on that ­demand. Ms Swales, who has just finished a series of meetings with farmers across Victoria’s dairying country, wants to give farmers the ­confidence to grow supply. Fonterra recently launched a partially fixed price system that allows farmers to lock in part of their milk price, helping them to plan financially and secure financing from lenders. Ms Swales said after a number of tough years, farmer optimism is growing. “They are feeling confident and have either paid down debt or reinvested back into the farm."